Over the last several years and In the wake of the #MeToo movement, plaintiff shareholders have filed D&O claims against many companies, as well as against the companies’ executives, involving underlying allegations of sexual misconduct or sexual harassment. The highest profile of these cases to be filed within the last year was the securities class action lawsuit filed against Activision Blizzard and several of its officers based on allegations that the company knew about and failed to disclose governmental investigations of employees’ sexual harassment allegations. In a recent order, the court overseeing the securities suit granted the defendants’ motion to dismiss the complaint, holding that the plaintiffs had failed to sufficiently allege both falsity and scienter. The dismissal was granted without prejudice. The court’s ruling illustrates the difficulty plaintiffs sometimes face in trying to bootstrap underlying sexual misconduct allegations into D&O claims. The Court’s April 18, 2022 order in the case can be found here.



The securities suit against Activision Blizzard followed in the wake of the filing by the California Department of Fair Housing and Employment (DFEH) of a civil rights complaint against the company and related entities The complaint followed a two-year investigation by the DFEH and alleged gender-based employment discrimination and harassment, retaliation, and unequal pay. The complaint alleges that the company had a “pervasive frat boy culture” that included workplace alcohol consumption and inappropriate and crude behavior toward female employees.


According to press reports, in response to the DFHE complaint, the company issued a statement that the company has taken allegations of misconduct seriously, but also stating that “The DFEH complaint includes distorted and in many cases false descriptions of Blizzard’s past” and that “The picture DFEH paints is not the Blizzard workplace.”


On July 26, 2021, more than two thousand former and current Activision Blizzard employees signed a petition stating, among other things, that the company’s response to the DFEH lawsuit was “abhorrent and insulting,” and that the statements have damaged the ongoing quest for equality inside and outside the company. The company employees later staged a walkout. The company’s CEO later issued a statement apologizing for the company’s “tone deaf” response. The turmoil has since led to a management shakeup.


As discussed here, on August 3, 2021, a plaintiff shareholder filed a securities class action lawsuit in the Central District of California against the company and certain of its executives. The complaint alleged that the company failed to inform investors about the underlying allegations of sexual harassment; failed to inform investors about the governmental investigation; and misled investors in statements about its Code of Conduct and other disclosures about the company’s culture and ethical practices. The defendants filed motions to dismiss.


The April 18, 2022

In an April 18, 2022 opinion, Central District of California Judge Percy Anderson granted the defendants’ motions to dismiss, although Judge Anderson also granted the plaintiffs leave to file an amended complaint to try to address the shortcomings Judge Anderson identified in his her opinion.


In granting the motion to dismiss, Judge Anderson first found that the plaintiffs had failed to sufficiently allege falsity. He said that although the plaintiffs “paint a picture of Activision’s toxic workplace and toleration of reprehensible conduct … these allegations are not particular enough to satisfy Rule 9(b).” Although confidential witnesses’ statements provided some support, “the showing here does not provide the specificity and particularity demanded by the PSLRA and the Ninth Circuit precedent.” Judge Anderson specifically found that the company did not have a duty to disclose the ongoing DFEH investigation prior to the agency’s filing of its complaint. He also specifically found that the plaintiffs allegations concerning the company’s Code of Conduct and business ethics were insufficient as well.


Judge Anderson also found that the plaintiffs had failed to allege scienter with the requisite particularity. The plaintiffs, Judge Anderson found, had failed to set out the requisite facts to support the conclusion that the company’s leaders should have known that sexual harassment and discrimination were endemic at the company. Judge Anderson said that “without particularized facts, the court cannot draw the necessary strong inference of scienter regarding any individual’s knowledge.”



Judge Anderson’s opinion is quite detailed, but his holding is basic. He essentially held that what the plaintiffs had pled did not amount to securities fraud. In words or substance, he held that the plaintiffs’ generalized and conclusory allegations were not sufficient to meet the heightened pleading standards under the PSLRA. The plaintiffs of course now have the opportunity to try to address the shortcomings Judge Anderson identified in his opinion. However, I suspect the plaintiffs will have difficulty addressing the deficiencies in the event they elect to try to file an amended complaint.


The obstacle the plaintiffs are encountering may be inherent in the effort to try to bootstrap the underlying sexual harassment allegations into securities fraud. Although it sometimes seems like the plaintiffs’ bar’s theory these days is that everything is securities fraud, the fact is that not every difficulty and challenge and company encounters amounts to a violation of the federal securities laws. As other plaintiffs have found in these sexual misconduct follow-on D&O suits that have been filed in the wake of the #MeToo movement, it can be difficult for the plaintiffs to present sufficient allegations to meet the requisite pleading standards in these kinds of cases – as noted, for example, in connection with the dismissal of the securities fraud lawsuit filed against Wynn Resorts (discussed here) and Papa John International (discussed here). {It should be noted that while the Wynn Resorts #MeToo-related securities suit was dismissed, the separate but parallel derivative suit settled for $41 million, as discussed here.}


To be sure, there have been cases of this type that have not only survived dismissal motions, but that have resulted in substantial settlements. For example, as I noted earlier this week, the plaintiffs in the sexual misconduct lawsuit against CBS recently succeeded in obtaining a settlement in that case. In that prior post, I detail in the discussion section several other sexual misconduct-related cases that have resulted in settlements, some of which were quite substantial.


Overall, it seems, the plaintiffs track record in these kinds of cases has been mixed. That may explain why none of these kinds of cases have been filed in recent months, though there were quite a few of these suits filed several years ago in the immediate aftermath of the #MeToo movement. I don’t think we have seen the last of these kinds of cases; I think there is a continuing risk for these kinds of cases as long as the underlying allegations of misconduct continue. Among other things, continuing issues involving gender pay disparity could lead to future suits. But for now at least, prospective claimants considering filing suits of this kind must consider the long odds against surviving the initial pleading hurdles.